That Was The Week We All Melted but FTSE Melted Up.
In an upside down world where crazy is the new normal, FTSE got a massive amount of love (some might say Roubles!) mid week which does not serve our view well. GDP shrank 0.1%, based on data that is as embarrassing as it is inaccurate, given the fiddles pointed out previously. The media gives the government a free pass on the economy and maybe that’s fair as mostly it is not under their control. Our YouTube friend Sasha has some words: https://youtu.be/aTFRu7l979Q?si=7e8Pq25WA6OVuxlo
So, no apologies for expressing a large dose of cynicism, but if you’re big enough you can lie about anything and get away with it. Warren Buffett had this to say:‘Over the years, Charlie and I have observed many accounting-based frauds of staggering size. Few of the perpetrators have been punished; many have not even been censured. It has been far safer to steal large sums with a pen than small sums with a gun.’ My words: “Crime pays, when it’s big.” We can only trade with what we are given but there’s zero opportunity for being dishonest in our trading.
In other news: Tariffs are raising cash for Trump but affecting people at the bottom of the heap disproportionately. The Canada spat may well be resolved but Japan has not taken kindly to the mob style governance in the US. With no hint of jollity Ferrero ( Mr ambassador you are spoiling us!) the Italian family owned business has bought Kelloggs (They’re great! -Tony tiger). No prizes for product mash ups. Meanwhile a lot of chatter about our own Post Office scandal, a crime that makes Brinks Matt look like a jumble sale theft. Angry? You bet.
In The Inbox
July Festival of Traders: https://www.youtube.com/@festivaloftraders/videos
Something for everyone, and well worth trawling through as these are some of the smartest traders around, including options legend Price Headley. And, it’s free just like us.
Snippets of trading-relevant info from https://www.cityam.com They issue daily emails sometimes more than one per day
Distraction Trades
ADA was $0.5726 now $0.7228 A rise of >25%
XRP was $2.2176 now $2.8041 A whole lotta love for our chosen Cryptos
DAX : 3 days no trade entries, 2 wins one break even, Nett: 340
UK Gilts Were £16.01 now £15.92 This is based on the Vanguard ETF, not a lot of love. Again.
Legacy Trades 420,421, 415a and newbie 422
415 How It Went Wrong And What To Do: It Becomes 415a
Jun 8650 call 162 July 8500 call 335.5, July 8650 call 225.5 gives us a grand total of minus 52. Remember we took in a credit of 25. This trade needs time to mellow
At expiry, the 8650 call went out for 180.We took in a credit 25. So a loss of 155. However:
We’re proud owners of the 8500/8650 call spread(worth 126 ) and we can get our 155 back. We sell the July 8700 call for 174.5, giving us 19.5 credit. So now we have risk at 8850 and no downside concerns, so here we have:
Trade 415a &415b
Last week: A small loss 8500 call 333, 8650 call 198, 8700 call 157 gives us a shortfall 22, minus our credit 19.5
Was: 8500 call 354, 8650 call 215.5 8700 call 172 gives us 138.5-172= minus 33.5
Now: 8500 call now 439.5 8650 call 291.5 8700 call 243 gives us: minus 95
On Jun 21, I posted this: 415b The other possibility for repair of Trade 215 is as follows:
We have a loss of 155 and a July long 8500/8650 call spread. We SELL the 8500 call for 338.5 and buy the August 8450/8650 call spread for 157.
We now have credit 181.5 so our loss is now a small credit 24.5 and a good looking call ratio calendar spread with risk at 8850.
Previous week: the short July 8650 call 198, the long Aug 8450/8650 call spread 381.5, 217.5 =164 still underwater but it runs.
Last week: 8650 call 215.5, 8450/8650 call spread 408-240= 168 gives us minus 47.5
Now: 8650 call 291.5, Aug 8450/8650 spread 491-310 =181, gives us minus 100.5
Trade 420
June punished us for poor trade selection, but sometimes the strangle is the ‘go to’ trade. So, what can we do for July? We have 27 days to expiry. Here’s a double put ratio spread.
8800 put 110 8600 puts 55 8650 puts 64.5, 8450 puts 35.5. We buy 1 8800 put and sell 2 8600s. We also buy the 8650 put and sell 2 of the 8450 puts credit 6.5
This makes a profit down to 8300 and to the upside has zero risk. Anything lower than 8800 and above 8300 is our target, and we can adjust along the way.
8800 put 69, 8600 put 24, 8650 put 30.5 8450 put 13.5 gives us 69-(24×2)= 21, 30.5-(13.5×2)= 3.5, a total of 24.5 credit. We took in a credit 6.5, winning!
8800 put 55.5, 8600 put 20.5(x2), 8650 put 25.5, 8450 put 12.5(x2) 14.5+ 0.5= 15 + credit 6.5 = 21.5 Not so good
8800 put 13 8600 put 5, 8650 put 5.5 8450 put 3.5 = +1.5 ( Thank goodness this was a tiny credit trade)
Trade 421 taking a simple principle
So, something has been troubling me and this is the overpricing of calls. While the term’ overpricing’ can be subjective it’s also sometimes fleeting. This came about from these guys talking about deep in the money covered calls. https://youtu.be/oxNvLwZ0dGo?si=vU24WddYTQ3IMmiz We are pure options traders, however and don’t own futures or stock. So, in this market that may take a dip we sell an ITM (in-the-money) calendar spread.
A quick glance at theta- all good, Deltas -ok, Gamma- near enough, volatility, in our favour. Our cost is 19.5 and at expiry we’d expect the August call, minus the July call value, to be worth more than the 19.5 we paid. There is a lot of leeway more than a simple buy and hope. We may be able to morph this too. And YES, there is risk but it’s not likely to be a game changer.
NB Underlying= FTSE future at the cash close at 16.35 on Friday.
Was: August 240, July 215.5 =24.5 a small credit
Now August 310, July 291.5= 18.5 credit (now a loss for 1)
Trade 422 A Big Beautiful Bearish Butterfly
So in these dark and trouble times we don’t want a lot of downside risk so we go with the safest trade- a butterfly. This one has massive reward/ risk if it comes off. Our strikes are July 8800 long put, 115.5, 8500 short puts(2) 45 = 90 8200 long put 22.5. Cost 48 Now we would not normally say such a hefty price but we don’t have to run this to expiry and it could do rather well. At 8500 we make 300 of course but we’ll try to catch out a few £££ and would be happy to make 40% .
You have to laugh! Now 8800 put 13, 8500 put 3.5 8200 put 2. Big loser!
Trade 423, Calling a Top? That’s for Idiots
OK, it’s hot and the July and August options chains look like a desert.We are going to do a contrarian Jade Lizard which would normally sell the call spread and the put, but here we sell the call spread to buy the put. Here’s the prices 8900 call 67 8950 call 37.5 8900 put 31 Give us a tiny cost 67 -(375.+31) = -1.5
This is of course heavily directional downwards, and probably a forlorn hope, but then if we rested on our laurels of great runs of winning trades, it would not be honest. Sometimes it’s better to sit on your hands, but we promise a real trade each week. We also look to preserve capital.
For those new to options:
https://optionsinvesting.co.uk/special-edition-how-options-work-1/
https://optionsinvesting.co.uk/special-edition-how-options-work-2/
https://optionsinvesting.co.uk/how-options-work-page-3/
Contact: surreyhantstraders@gmail.com If there is anything you’d like help with, we all started somewhere and yes, it can be baffling. There are no stupid questions
All opinions expressed here are not to be taken too seriously and all of the trades are for educational purposes only.